The economic landscape in China are finally pointing to a rebound pic.twitter.softpedia.com As of June 2025, the Consumer Price Index (CPI) has flipped to slightly positive, bringing an end to four months of month-on-month deflation. The CPI for June was just a 0.1% inflation year-over-year. This does provide some hope, particularly coming on the heels of a run of price decreases earlier this year. This new data arrives along with a wider macroeconomic picture that shows diverging trends for consumer and producer prices.
Or consider that in the first half of 2025, China’s CPI averaged -0.1% year-over-year, a sign of deflationary grip. The core CPI that strips out volatile food and energy prices averaged a tame 0.4% over the same stretch. This would imply that despite the universal pain on the consumer price front, there are parts of the economy that have settled down.
China’s Producer Price Index (PPI) has faced an uphill battle as well. In the first six months of the year, it was -2.8% YoY on average. Producers are facing unprecedented prices for their products. These conditions are squeezing their profit margins and broader economic sentiment.
Further down the road, the outlook for China’s CPI has been downgraded to -0.2% for all of 2025. Likewise, the PPI forecast has been revised down to -2.7%. These projections are very much a sign of continuing fears over demand and price stability in the Chinese economy.
June 2025 featured a particularly dramatic turn around, with China’s CPI returning to positive growth from a -0.1% year-over-year drop reported in May. This change reflects a recovery emerging behind industrial consumer goods prices. In June, these prices were down only -0.5% year-over-year, a weaker pullback than the -1.0% dip recorded in May. A much smaller drop in energy prices provided additional upward momentum and improved general market sentiment. Furthermore, the average prices of gold and platinum jewelry increased, contributing to this optimistic trend.
“China’s Consumer Price Index (CPI) turned mildly positive in June at 0.1% y/y after declining from February until May. This was attributed mainly to the rebound of industrial consumer goods prices (-0.5% y/y; May: -1.0%), which in turn was led by a smaller decline in energy prices and increase in prices of gold and platinum jewelry.” – UOB Group’s economist Ho Woei Chen
Although we’re pleased to see these signs of recovery, troubling challenges persist in the larger economic picture. This typical inflation measure reported an annualized decline of 3.6% in June 2025, with prices falling month to month. It was down 0.4% from the prior month, indicating that producers are still confronting significant inflationary pressures. A falling PPI can put pressure on profit margins and eventually result in less capital investment by companies.
Within the arguably pronounced monetary policy landscape, China’s financial authorities would be prudent to draw a straight line to continued cautious pursuit. The 7-day reverse repo rate is expected to end the year at 1.30%. At the same time, the one-year Loan Prime Rate (LPR) is projected to end at 2.90%. Our forecast for the five-year LPR is 3.40%. These higher rates will be a key factor in driving up borrowing costs and economic activity.
The rich interplay between consumer and producer prices sheds light on the challenges of China’s post-COVID recovery. Some positive signs in the CPI indicate consumer spending may be stabilizing. The ongoing drop in producer prices is dangerous because it can affect the long-term outlook for production and investment.